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Question
The capital redemption reserve account may be applied to issue______.
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Solution
The correct option is D Bonus shares
Bonus shares are shares distributed by a company to its current shareholders as fully paid shares free of charge to capitalise a part of the company's retained earnings for conversion of its share premium account. The bonus shares are issued from the earnings of capital redemption reserve account which is transferred from undistributed profits i.e general reserves, profit or loss account. The amount of capital reserve cannot be used for redemption of preference shares. Therefore, no amount is transferred in to capital redemption reserves out of capital reserves.
Bonus shares are shares distributed by a company to its current shareholders as fully paid shares free of charge to capitalise a part of the company's retained earnings for conversion of its share premium account. The bonus shares are issued from the earnings of capital redemption reserve account which is transferred from undistributed profits i.e general reserves, profit or loss account. The amount of capital reserve cannot be used for redemption of preference shares. Therefore, no amount is transferred in to capital redemption reserves out of capital reserves.
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